I think its important to use our language in a way that best expresses what we intend to say within the restrictions of truth.

Penn Jillette, noted libertarian and juggler, has expressed publicly that he refuses to say “marine mammals” and instead insists on calling dolphins and whales “fish”. Jack Spirko, noted libertarian and rifleman, has said on numerous occasions that he doesn’t make a big deal out of the difference between an ammo clip and an ammo magazine. These simple terminology variances don’t matter in most situations. Both men are correct.
That is, of course, unless you’re a marine biologist speaking about the difference between dolphins and sharks, or if you’re firing an M1 beside your buddy who’s firing an M16 while asking you for ammo. Not likely scenarios, but you can see how these things take on a different level of importance according to the situation.

Such is the case we face when discussing two key phrases, fiat and ex nihilo.
Why would we care about the difference?
Stick with me and maybe I can answer that question.

Fiat roughly means something like “so it is” or perhaps “as it is”. Either way, its clumsy to say in English, thus we say it in Latin. What it actually means is “to accept at face value in faith”. It’s very similar to when we say “amen”. It’s a step in faith saying, “I believe this to be so and will act accordingly”.

Ex nihilo, on the other hand, actually means “out of nothing” or “from nothing” or even “from the air”.

Most of the time a distinction between these two expressions won’t matter. That is, of course, unless you happen to be a theologian debating the creation of the universe, or an economist talking about the value of money. Then the difference becomes critical to your discussion.

Fiat money is money backed by faith. But money has no set value. It only has the value we believe that it has in a particular situation.

Let me give an example; Assume Bill Gates is standing outside a coffee shop with a five-dollar bill in his hand. That five-dollar bill has a dramatically different value to Bill than to the disabled man walking by who is on a fixed income. And it has an even different value to the person inside the coffee shop who will accept it for coffee. To Bill, a cup of coffee is worth more than his five-spot. But the man on a fixed income wouldn’t think of paying five bucks for a cup of coffee. However, the shop attendant will gladly give up a cup of coffee for the money.

So now we have established the difference between the dollar amount printed on the paper and the actual value of the paper to the beholder.

Now lets take the next step.
What if it’s not Bill Gates?
What if it’s Ben Stone and the bill he’s holding is counterfeit? Not just any counterfeit, but a perfect counterfeit. (Notice I said “what if”!) What if Ben has a counterfeiting process and can produce any denomination of bill perfectly and at almost no cost? For the purpose of this demonstration, Ben cannot be caught and he cannot be stopped.
Lets say Ben produces a batch of money and comes into town. He spends $500 at a restaurant then buys two new cars from the local dealership. On the way home from his shopping spree he stops for coffee where he covers everyone’s bill in the coffee shop and leaves a $100 tip with the shop owner.

The effect of this act of counterfeiting is a sudden increase of wealth injected into a very narrow segment of the community, and a sudden devaluing of the money held by the rest of the community. We have already established that the value of money is based on the perception of the beholder. Money is now easier to obtain and therefore less valuable to the restaurant owner but just as hard to get for his other patrons and his cook. Money is now easier to obtain and therefore less valuable to the car dealership owner, but just as hard to get for the other car buyers and the auto mechanics.

Back at the coffee shop the owner may decide that, now that he has this new big shot customer, maybe its time for a price increase. After all what’s another dollar going to mean to a rich guy like Ben? He’ll still buy the coffee.

Ben is not producing money ex nihilo. He is producing money fiat. He is producing money with a perceived value based on what the people of the community believe. And as he does so, the value of the money in the community decreases. Prices go up and wages are slow to respond if they change at all. Those on fixed incomes and those on hourly wages feel the squeeze of higher prices right away as their dollars are worth less and less each time Ben spends money. Again, Ben has not created money out of nothing. The value of the money is placed upon it by perceptions in the community.
Ben stole the value of the money from the low end users of money in the community and redistributed it to Ben and the first users who received it. He did not create any wealth.

Now lets change one more aspect of this scenario.
Lets say Ben’s last name is not Stone.
Lets say Ben’s last name is Bernanke!
When Ben Bernanke produces money it is not out of thin air!
Ben Bernanke produces fiat money through credit expansion. And when he does so he does it at the expense of YOU. It is your wealth and the value of your dollar that is shifted upward to the top end users. The bankers and the Treasury Department get the new money first but the value of the money comes out of your pocket. Prices go up and the poorest people in society pay the most for the credit expansion.
Ben Bernanke doesn’t produce wealth ex nihilo! Ben Bernanke produces money fiat.
Ben steals the value of the money from the low end users while enriching the high end users; he does not create the wealth.
This is what Ron Paul calls an invisible tax and it strikes those on fixed income and hourly wages the hardest, since they are low end users.

So now, this begs the question; how is wealth created?

Well, one example is when you take a seed, put it in the ground, and grow tomatoes. You have invested one seed, mixed your labor with the energy of the sun, elements in the soil and the air, added time, and you produce wealth ex nihilo!
Theologians, please sit down and stop screaming at me! I’m not attacking your religion. I realize you don’t use the phrase that way, but it’s an accurate use of the phrase nonetheless. When you take a resource, invest time and labor, and produce something of more value than the sum of its parts you produce wealth ex nihilo.